Listening to multiple presentations from a variety of vendors with cloud-based solutions, you would get the impression that the greatest benefit of the cloud is cost savings. That’s certainly the way most marketing pitches for the cloud seem to lean.
While it is true that entry costs for a subscription-based service will almost always be lower than the entry costs for a service or product that is purchased outright, the math begins to favor the capital expenditure after the 5 or 6 year mark.
This situation is quite similar to the cost differential between purchasing a home or automobile outright vs the long-term costs of financing these same items over a longer period of time. Ultimately, you pay for convenience, and the cloud offers a special brand of convenience. The key is for an organization to determine if the benefits which are derived from this convenience, outweigh the raw costs that might be greater over the long haul.
It is no wonder that very few vendors will ever suggest that the long-term costs of any particular cloud computing service are automatically lower than the alternatives. No, what the cloud provides is low entry costs plus increased business and technology flexibility.
Typically, when an organization is planning to implement a large solution suite such as Customer Relationship Management (CRM) or Enterprise Resource Planning (ERP), it is necessary to procure and provision all the necessary hardware to support the full implementation well in advance.
Thus, even if the proposed CRM or ERP system will eventually be deployed across 4 departments over a 9 month period, the initial hardware that is purchased and installed, must be able to support the complete user community. In order to obtain the best prices, the software licenses are often obtained upfront as well.
While this obviously front loads the organization’s costs, it also extends the project implementation time for those initial users. More importantly, once such an expenditure of time and money has been made, there’s no backing away from this type of project – even when the presumed benefits fail to materialize.
The required level of commitment for this type of purchase generates a correspondingly complex and drawn out approval process, which then impairs an organization’s ability to respond to industry pressures and business changes.
By reducing both the upfront costs and the deployment time, organizations gain a tremendous advantage in rolling out new solutions, and testing new approaches, while minimizing their overall risk and the scope/cost of the change.
To use the earlier example, our hypothetical organization can more readily implement the new cloud-based CRM solution for the first department on the list, which allows them to start realizing a return on their investment earlier than with the on-premise solution.
Then, should it turn out that there is only a business benefit from having 2 (not 4) departments on the solution for the first year, they have a great deal of flexibility in changing direction to accommodate this new reality.
Buying into a cloud-based application or environment is more than just paying monthly, quarterly or annually for a service. In many cases, organizations are not just purchasing a product, but buying into an ecosystem – one that has the potential to integrate with other applications, platforms and environments that the organization might be interested in.
This integration potential is more viable at the cloud level due to the larger economies of scale available to cloud vendors. The benefit to cloud customers is that they can more quickly gain access to new application programming interfaces (APIs) or new application features or new plug-ins to the application environment that give them new features and capabilities.
And this can typically be done without a massive upgrade of the platform in question. The cloud holds the potential to remove the complexity of upgrades from the business consumer, resulting in faster, less painful access to new features as compared to what is possible in an on-premise configuration. Faster access translates to earlier business implementation and improved business agility.
Security is often cited as a primary concern against cloud computing, but a recent CIO.com survey shows that a large percentage of IT professionals consider it safe to use in some capacity. Additionally, looking at the list of the largest breaches for 2012, very few of these victims could be said to be cloud providers. While cloud vendors are going to face more attacks because there is a greater store of treasure to be had, they also have more incentive and impetus to implement effective security measures for their environments.
Organizations which can take advantage of this level of expertise to provide or implement more secure services and applications will win by doing so. But putting themselves in a better position relative to the security of the applications they use – especially for holding customer data – they will be able to gain competitive advantage over their competitors that are scrambling to identify and mitigate these risks on their own.
Saving money is a good thing, whenever it can be done wisely, but it can be just as important to spend money more effectively, and the cloud provides organizations with a number of ways to invest more wisely, deploy more quickly, integrate more effectively, and secure more thorough – all of which add up to greater business agility.
An improved top line can be very great for the bottom line.
About the Author
Andrew S. Baker is a hands-on architect of advanced technology solutions that increase corporate agility, mitigate business risk, reduce operating costs, and facilitate business growth for organizations in the SMB market. Mr. Baker has served for over 15 years as a trusted technology advisor to small and mid-sized organizations across many verticals, specializing in the areas of technology infrastructure, information security and cloud computing.